Divergences in the Euro Area

After a period of convergence in the early and mid-1990s, the euro area economies may have started diverging. As a consequence, the common monetary policy could become well-suited for a number of countries. This paper discusses the extent and severity of the recent divergences, and the capacity of exposed countries to compensate for nationally suboptimal monetary conditions through other policy channels. This paper presents a “convergence barometer” to monitor divergences, and a Taylor rule based “monetary thermometer” to compare the common monetary policy…

Author: Nils Björkstén, Miika Syrjänen

Source: Research Discussion Papers, Bank of Finland

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